Catalina Patent Worries Loyalty Marketers

Catalina Marketing Corp.'s new patent on the delivery of consumer promotions based on shoppers' historical purchase data could unsettle retailers and loyalty marketing firms.

Patent No. 6,424,949 gives Catalina, St. Petersburg, FL, the legal right to use historical purchase behavior as a methodology to target relevant incentives, promotions and advertising to consumers.

"The database marketing community should take heed as this patent strikes at the very ability of database marketers to effectively do business with their retail clients," said John Brady, vice president of partner development at advertising agency 360 Group Inc., San Rafael, CA.

The patent, announced earlier this month, is titled "Method and System for Selective Incentive Point-of-Sale Marketing in Response to Customer Shopping Histories." Its application, however, goes beyond tailored incentives at POS, retail kiosks and any electronic in-store devices. It could apply to incentives delivered to shoppers by mail and e-mail as well.

"Catalina, in addition to the check stand purchase, also does activity with direct mail, and we also do it on the Internet," said Eric Williams, senior vice president and chief technology officer at Catalina. "And this patent, the way it is written, does not restrict us from just delivering the incentive at the check stand."

Williams would not describe the restrictions regarding the patent, saying he was "not a patent attorney." But with this and other patents in Catalina's portfolio, "it covers almost all aspects of delivery, of targeted communications, for the consumers. These [patents] have been built over the past 10 years."

Consider some of the 13 claims in the filing. Claim 10 alludes to "the method of claim 5 wherein said step of issuing an incentive comprises effecting an electronic discount from the customer's bill at point-of-sale." The next claim refers to the "step of issuing an incentive comprises varying a smart card memory." Claim 12 says the "step of issuing an incentive comprises printing promotions for delivery to customer's home addresses."

And claim 13 cites the "step of issuing an incentive comprises printing coupons from a printer at the point-of-sale."

The claims also deal with customer preference criteria. Claims 6, 7, 8 and 9, respectively, refer to customer preference criteria over a prior period comprising the dollar value of purchase, frequency, physical volume and "products preferred by said customer relative to said set of previously purchased products."

Claims 1 and 5 describe the method for targeted customer promotions at retail stores. Claim 5 says one method is entering a customer's identification code, along with customer transaction data, at POS. Others include detecting the universal code on products purchased and storage related to UPC data on products bought in prior shopping visits by the customer.

The use of identification codes in scanner data raises yet another red flag for 360 Group's Brady, especially relating to loyalty cards. According to him, the only limitation of this patent is that the common customer link used must be related to a financial instrument -- cash card, check, credit card or the like.

"And even that limitation is unclear in the wording of the patent as it goes on to mention 'any unique customer ID,' " Brady said. "In addition, there does not appear to be distinction as to whether usage of another unique ID and storage of a 'financial ID' is enough to operate outside the patent's confine. It even appears that the Neiman Marcus card, by using their financial identification, could be in violation. If this is true, it limits our ability as direct and database marketers to leverage traditional mainstay approaches to segmenting and targeting our customers down to direct mail. Everyone in the community should be concerned about the potential absurdity of this patent."

The National Retail Federation, a Washington, DC-based trade body for retailers, also is alarmed.

"The way it's written, the existing CRM systems that the retailers have built themselves would fall under it as well," said Don Gilbert, senior vice president of information technology at the federation.

Glenn Stoops, a former Coca-Cola Co. executive who handled data mining and e-commerce for the beverage marketer, said Catalina's patent documented what Coke has been doing for years. But that does not mean there isn't more to it.

"I'm just wondering if the patent applies a little more narrowly in terms of their process and how they capture the data passively through the retailers' systems, and then perhaps part of that is covering some special algorithms or programs that have been written for it," said Stoops, who now runs GTS Consulting, Roswell, GA.

A key reason for the latest Catalina patent is to guard against potential competition and upstarts in the CRM space. Among the big players, Valassis and News America Marketing specialize in freestanding inserts and IBM Corp. and NCR in POS technology. Online, CoolSavings serves promotions on behalf of clients based only on information submitted by registered consumers.

However, companies such as CMI and RMS for years have built front-end systems for loyalty cards. These systems are designed to look at purchasing behavior, pull buckets of people based on what they bought in the past and follow that with targeted mail offers.

"I think it may be difficult to defend [Catalina's new patent] because so many retailers and other companies have been doing very similar things with their data for years," Stoops said. "[Supermarket chain] Wegman's has been doing direct marketing to their customers based upon their purchase behavior for years. So that's why I'm wondering if really underneath that patent is more applied to their process specifically inside their systems."

Catalina's position is that most companies in loyalty and customer relationship management do not offer the services covered in its patent.

"They do quality purchases over time, they do total spend in a store and [also] before they send out information in advertising," Williams said. "But they don't put a promotion with it. Most of our things have to do with promotions and incentives. So, if they continue to do these types of ideas, they're welcome to those as long as no one else owns the patent on that idea. When they start using historical data to build a customized advertising sheet that includes promotions, that's where, depending on how they do it, it could infringe on some of our patents."

But more than just defending turf, Catalina also smells opportunity. An estimated 17,000 supermarkets and some mass retailers use its services, including thermal printers at checkout. But the company wants to expand into verticals such as specialty retail chains, fast food and larger mass merchandisers. All are opportunities for its concept.

"It didn't used to be, because the frequency of spends in the stores, the number of items, a whole variety of limitations, really didn't make the idea of monitoring consumers' purchases [attractive] so that you could give them communications relative to the items that they're after," Williams said. "It worked very well in the supermarket arena, but now loyalty cards are beginning to gain an interest level in these other verticals. As they start coming to fruition, you should start seeing more and more of these clients, more of these retailers installing loyalty cards. We think our technology will absolutely be something they should look at."